Conference Call: iLife, Cisco, iPhone

• Apple's record holiday quarter surpassed its previous December quarter (which had 14 weeks versus 13 weeks).


• Macs: Apple's Mac products represented 43 percent of overall revenue. Apple shipped 1.6.1 million Macs, ahead of internal expectations. Ending channel inventory of Macs was essentially unchanged from the prior quarter, and was just below the target range of 4-5 weeks. Customer demand for portable Macs remained particularly strong. "We feel very, very good about how we did on both the Mac and the iPod internationally, particularly in Europe."


• Operations: Gross margin was 31.2%, almost 300 basis points higher than guidance, primarily due to the favorable commodity pricing environment, better product mix, and greater leverage of fixed costs due to the higher-than-expected revenue. Operating expenses were $898 million, including $40 million in expense related to stock-based compensation. Operating margin was exceptionally high at 18.6 percent, resulting from revenue growth and effective cost management. Last quarter, favorable pricing came across the board and for this quarter, we see that favorable pricing environment continuing on LCDs and Flash memory, and we believe that DRAM will be relatively supply/demand balanced.


• Cash increasess: Apple increased its cash balance by over $1.75 billion to end with $11.9 billion. This was primarily a function of strong earnings and working capital management.


• SEC/options scandal"We from the beginning have voluntarily and proactively provided all details of our internal review and the independent investigation to the SEC and the U.S. Attorney for the Northern District of California. We are continuing to voluntarily and proactively inform them of our findings and answer their questions."


• On iPhone's network: "At this point, we are very much sold on the 2.5 for the edge network with Cingular, because it is much more widespread and widely deployed in the U.S. We do not comment on our roadmaps, et cetera, but obviously we would be where the technology is over time."


• On Mac OS X Leopard: "We continue to plan to ship Leopard in the spring as we had announced at the developer’s conference. We have a lot of people working on it."


• Possible stock split: Analyst says: "Last year, well, actually in ’05, there was a stock split, about $80. Just curious on your thoughts" Oppenheimer responds "Nothing to share with you today."


• On Apple TV: Analyst asks: "Do you think Apple TV is more of a niche market similar to AirPort Express has been for the music market, or do you see this as a broader platform?" Cook responds If you're asking from a demand point of view, I think we'll see as we move forward. It's really too early to tell. From how we're positioning the product, as Steve indicated in the keynote, we see this as the DVD player of the 21st century so it's clearly not a niche."


• Bootcamp downloads: "We are now up to 1.5 million downloads so it continues to be of great interest to a number of different people, and our intention is still the same, to include it in Leopard as we release Leopard in the spring."


• On Cisco lawsuit: "We think the Cisco trademark lawsuit is silly, as we've said before. There are already several companies that use the name iPhone for voice over IP products, and we believe that Cisco's U.S. trademark registration is tenuous at best. We are the first company to ever use the iPhone name for a cell phone, and if Cisco wants to challenge us, we're confident we'll prevail."


• On Japan: Apple said that the PC market in Japan is among the weakest in the world. "IDC was projecting a 16% contraction year-over-year in the home market, which is obviously the market that is most important to us. In the MP3 space, we maintained a 50% share of the market. However, the market did not grow, and with the lower prices that we announced in September, that resulted, along with the CPU performance, to a lower revenue on a year-over-year basis.... We are disappointed with the results, even though they're consistent with the market in both areas of PC and MP3 and we're putting additional emphasis there. We just started running a localized Mac/PC ad that's getting very, very good reviews there."


• On Parallels: "We support Parallels today, they are a key application partner, developer for us. We are clearly supporting them."


• On iLife: "Peter, you mentioned before that the iLife is a January refresh. We didn't hear anything about that during Macworld. Is iLife still a January refresh time schedule?" Oppenheimer responds: "We don't announce our future products, but stay tuned."

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